Archive for the ‘Illinois’ Category

Chicago’s Mayor Richard M. Daley recently added insult to injury by awarding additional funds in a relocation deal for United Airlines. Daley gave another $10 million in subsidies –on top of the $25.9 million in TIF monies we previously reported– bringing the total two-year subsidy from the city of Chicago to United Airline’s parent company to $50 million. Politicians often claim that TIF and other development subsidies cannot distress budgets. If this were true, why are crucial city services being cut concurrent to lavish subsidies being given?

When tax base is diverted, other city services must be paid for either by raising new taxes or reducing existing services. Chicago Public Schools just passed a draconian budget that slashes teacher benefits. Experts point out that TIF has skimmed at least $500 million away from school tax revenues. Listen to neighborhood residents speak out against TIF diversion.

The TIF subsidy encourages UAL to leave its current operations center next door to Chicago’s O’Hare Airport, shifting commutation patterns for 2,800 employees –employees who probably use airport facilities. The operations center used to house UAL’s headquarters between 1961 and 2006 until the city gave tax breaks and incentives to UAL for a new office in the Loop. Why would an airline relocate its operations center 19 miles away from the world’s 4th busiest airport?

Historically, Chicago and outlying suburbs use incentives in controversial ways. In 1989, Sears, Roebuck & Co. announced that it was seeking to relocate from the Sears Tower to cut costs (see page 36 of our 2003 report, A Better Deal for Illinois). The State of Illinois feared losing $411 million in income taxes (from 5,400 jobs) and 2,200 ripple-effect jobs if they left Illinois. An affluent suburb 29 miles northwest of the Loop put together what was the largest subsidy package ever in Illinois history at $178 million. The state not only chipped in but expanded the definition of ‘blight’ in Illinois’ TIF law so that the wealthy suburb could buy 786 acres of land with TIF bonds to be repaid out of Sears’ property taxes.

Although Sears promised to make up shortfalls in the property tax revenues (and did in 1998 and 2001), missing was a clawback relating to the 5,400 jobs which the state based its incentive rationale on from the get-go. Sears never approached the original employment number, which begs the question: did it move out of necessity or to avoid paying for mass layoffs and the negative media attention?

The City of Chicago is in a pinch. Two recent winters have threatened the city’s budget to the brink of collapse and forced the mayor to lease the city’s parking meters to a private entity for 75 years. Despite city coffers in ruin, TIF funds overflow. A new report by the Chicago Coalition for the Homeless shows TIF-funded units are disproportionately sold or rented to high-income households. Recent investigations indicate that TIF dollars are awarded on dubious basis in lieu of need in a city full of questionable zoning practices. Moreover, a recent $10.4 million TIF deal fell through, leaving the city without the jobs it paid for. Despite this, the city resists passing TIF sunshine laws.

Chicago’s 158 TIF districts covering 30 percent of the city are diverting revenues that would otherwise keep schools solvent, plow streets, maintain public transit, and fix potholes. TIF has strayed from revitalizing distressed communities and is instead being used to shuffle tax base across the region. Moving jobs does not create new jobs. TIF reform is long overdue in Illinois.

With the election of a new president, officials in many states are hoping a renewed federal/state partnership will jumpstart the troubled economy. Until the new president takes office, however, falling revenues have prompted some states to take actions that are counter-productive rather than counter-cyclical.

States are in a tough spot. For example, Illinois officials predict a revenue hole this fiscal year of $800 million or more. The Center for Budget and Policy Priorities (CBPP) projects state budget shortfalls across the nation will total $100 billion in fiscal year 2010.

Since every state but one must balance its budget, without federal support lawmakers must raise taxes, cut services, or both. (Outright fiscal irresponsibility—e.g., failing to pay Medicaid bills, underfunding state employee pension funds—is another option: Illinois’ unpaid bills could top $5 billion by early 2009.)

Johnson cites the work of noted economists Joseph Stiglitz and Peter Orzag. They argue tax increases, by reducing savings and not just consumption, are less harmful to a depressed economy, especially when they fall mainly on wealthier taxpayers.

While some states have enacted such tax increases or closed loopholes, others have instead considered tax cuts. Yet tax cuts are the least effective way to stimulate state economies in a recession. They can lead to further spending cuts while reducing the buying power of public employees. Fortunately, voters in several states have recently rejected the tax cut mantra.

States would be better off strengthening consumer demand by extending unemployment insurance, preserving healthcare coverage, preventing foreclosures, and speeding up already scheduled public works projects. The federal government could help by providing grants, paying a larger share of Medicaid costs, and rescinding (or actually funding) burdensome, federally-imposed unfunded mandates that cost states nearly $34 billion in the last fiscal year.

States can help themselves by better tracking, targeting or terminating largely unmonitored business incentives and tax giveaways like Single Sales Factor. They could adopt comprehensive unified economic development budgets (UDB), like the excellent UDB proposed for Kentucky. While more federal support is needed, states can use the recession to make their own economic development spending less wasteful and more productive.

Chicago-area advocates of more sensible growth and land-use policies got a boost this week when Chicago Tribune columnist John McCarron urged the region’s public officials to see one upside of the painful economic crisis: a chance to put the region’s “suburban sprawl machine” into reverse.

The editorial described the redevelopment of an old naval air station in suburban Glenview as an example of more rational, energy-efficient and compact suburban development based on accessible public transit. A recent report by Chicago Metropolis 2020, a business-oriented civic policy group, predicts that seniors and low-income immigrants (two groups leading the region’s population growth) will demand more such compact and transit-rich communities, as well as more affordable housing.

Even if the recession limits some smart growth investments, McCarron believes local governments can still require private developers to take common sense steps to increase energy efficiency, transit access, and the number of pedestrian walkways.

Besides McCarron’s suggestions, other smart growth measures, affordable even in a recession, include promoting the state’s little used “business location efficiency” incentive, which provides a moderately larger corporate income tax credit to companies locating near affordable housing and public transit. McCarron is certainly right to urge Illinois officials to respond to a bad economy with policies that both promote more sustainable development and save taxpayer dollars.

Chicago city government faces a two-year deficit of at least $469 million, with additional massive shortfalls looming through 2012. Mayor Richard Daley has proposed some draconian steps: laying off over 900 city workers, eliminating over 1,300 unfilled positions, raising city amusement and parking taxes, and imposing six days of unpaid leave on “non-essential” city employees.

Daley blames the unexpectedly large deficit on the economy, but others are citing causes the mayor is not eager to discuss, such as the city’s overuse of tax increment finance districts (TIFs). Chicago had 37 TIF districts in 1997; it now has 155; they can last 23 years and even be extended 12 years beyond that.

The original purpose of TIF in Illinois was to help genuinely “blighted” neighborhoods. However, under Daley, Chicago has been a leader in making TIF an all-purpose development and attraction tool even in already thriving or growing parts of Chicago, including the commercial/financial powerhouse called the Central Loop.

In their analyses of the city’s budget crisis, both dailies, (the Tribune andthe Sun-Times), and an alternative weekly (the Reader) have all cited TIF’s massive diversion of property tax revenue –now $500 million annually –from city services, schools, parks and other local services.

The revived debate over TIF’s harm to public services is a tribute to the now-defunct Neighborhood Capital Budget Group.As their ground-breaking 2001 study “ Who Pays for the Only Game in Town? revealed, many Chicago TIFs are in areas that were the opposite of blighted. Now the high price of diverting revenue from areas that were already rising in value without the TIF boost is coming home to roost.

With substantial state and local subsidies, MillerCoors—the new joint venture that unites Miller Brewing and Coors Brewing—has announced it will locate its new headquarters and 300-400 employees in downtown Chicago. While hailed by Illinois Governor Rod Blagojevich and other leaders as a major gain for the region’s economy, the deal once again poses questions about the role of such public subsidies in business location decisions, and their costs compared with their benefits.

While modest compared to earlier Illinois mega-deals, the state and local incentive package promised MillerCoors is still substantial, ranging between $20.5 and $23 million or about $57,000 per job. Chicago’s competitors for the new headquarters were reportedly Dallas, Kansas City, Boston and Atlanta.

As a result of MillerCoors’ decision, Milwaukee will lose 150-175 administrative jobs to Chicago, although the company will reportedly boost the capacity of its Milwaukee brewing operations by up to 55% by 2011. Employment at the company’s Molson-Coors’ headquarters in Golden, Colorado apparently will be similarly affected.

These comments suggest that subsidies from fiscally hard-pressed state and local governments were a minor, even negligible factor in MillerCoors’ decision to put its headquarters in Chicago.

Even the Chicago Tribune has its suspicions. Although the Tribune print edition’s front page story on the deal had the upbeat headline “Beer giant to locate in Chicago”, the on-line version had “Beer tab too high for jobs?” While acknowledging the “symbolic victory” for Chicago of landing the MillersCoors headquarters, the Tribune pondered whether an incentive package was even needed, given Chicago’s many economic and cultural assets.

The Tribune’s skepticism may reflect disillusion with the hype and exaggerated claims associated with the 2001 Boeing deal. The massive state and local subsidies provided Boeing then were justified by inflated job creation claims and by unfulfilled predictions of an influx of new corporate headquarters to Chicago.

In contrast, the Tribune’s story on the MillerCoors deal cites federal data showing high-paying corporate management jobs continuing to grow rapidly despite the Chicago’s loss of some headquarters. Perhaps if more observers shared the Tribune’s skepticism, there would be fewer, and less costly subsidy giveaways.

The Chicago Reader reported last week on the 18-month lifespan extension of a downtown TIF district that had already benefited from hundreds of millions in diverted property tax revenue and had been scheduled for retirement in 2007. The current extension is rumored to be a dress rehearsal for a full 12-year extension.

The Central Loop TIF district was created in 1984 to spur development in the apparently jinxed Block 37—where plans for a new station providing rapid transit to O’Hare Airport have just collapsed—but it now covers a wide swath of the Loop, one of the nation’s leading business and commercial hubs. The district’s geographic expansion is an especially glaring example of how state and local governments in Illinois have turned TIF into a largely unregulated diversion of property tax revenue to spur development in already affluent or thriving areas.

Having burst its original physical boundaries, the Central Loop TIF district, like others in the state, has stretched its physical life as well. In Illinois, TIF districts are supposedly created for areas designated as “blighted”, allowing increases in property tax revenue in the district to be reserved for further economic development rather than allocated to local taxing authorities. State law originally limited the ordinary duration of TIF districts to 23 years, and public officials seeking to create TIFs still cite this time limit.

However, the Reader’s Ben Joravsky, who has extensively covered the cost to taxpayers, education, and public services of TIF overuse/abuse, recently reported that the Chicago City Council in 2000 quietly extended the original 23-year lifespan of the Central Loop TIF district, due to expire in June 2007, to December 2008.

The extension was made possible by a 1999 state measure pushed by Mayor Daley and City of Chicago lobbyists, who claimed TIF districts were being short-changed because of the lag between when taxes were levied and when they are actually collected. However, Joravsky cited figures from the Cook County Clerk’s office that show the Central Loop TIF had already collected over $2 million in diverted tax revenue within three months of its creation in 1984.

With the extended duration of some TIF districts to as long as 35 or 36 years–an eternity for school districts, park districts, and other services dependent on property tax revenue–their economic development promise has become a nightmare.

The cost to schools and other public services and the unaccountability of Chicago’s TIF districts has long been controversial, due to the pioneering critiques of the Neighborhood Capital Budget Group (now defunct), the Center for Economic Progress and Illinois Housing Action. Cook County Commissioner Mike Quigly also has called for more accountability and openness in TIF expenditures by Chicago and its suburbs.

Even the Civic Federation, a leading Chicago business organization, called in 2005 for the Central Loop and some other Chicago TIF districts to be retired so tax revenues could be restored. Last year a Federation report called for a city TIF budget, since “TIF expenditures now occur in such a sporadic and obscure fashion that voters have difficulty knowing what’s really happening.”

The tax revenues appropriated by TIF districts in economically robust areas are large.Last year, the Cook County Clerk’s office noted that the Central Loop TIF was one of two Chicago TIFs that “alone are collecting more revenue ($152.5 million) this year than all Cook County spends from property taxes toward public health.”According to county figures cited by the Reader, the extension of the Central Loop TIF has meant an additional windfall of $48 million in diverted revenue for the first half of 2008 alone.

Nevertheless, Mayor Daley—who recently lobbied the Illinois legislature for $180 million for Chicago’s financially strapped school system, one of the public services starved by diverted TIF tax revenue —is reportedly seeking the legislature’s permission to extend the life of the Central Loop TIF by another 12 years.

After decades of taxpayer-funded “smokestack chasing”, many states are now trying to lure Hollywood film projects with big subsidies. In a remake of beggar-thy-neighbor competition, states in every region are matching and surpassing special tax breaks for the film industry. Meanwhile, as these tax giveaways become more common and so less effective, the actual economic and fiscal payoffs of this subsidy-driven competition remain in doubt.

The necessity and efficacy of film industry subsidies has become a dogma for their proponents in state government and in the film industry.Seeking renewal of the Illinois Film Tax Credit (a 20% rebate on qualifying in-state expenditures), Governor Rod R. Blagojevich recently touted a seven-fold increase of film industry spending in the state from a low of $23 million in 2003 to a record $155 million in 2007, while claiming 26,000 film project jobs in 2006.

However, Blagojevich did not report the cost of the state’s subsidies to the film industry, the quality and duration of the jobs created, or the tax revenues generated by film projects.

In fact, the number of critics of state film incentives seems to be growing. A 2006 analysis by the Federal Reserve Bank of Minnesota concluded that while such incentives are indeed popular, “neither will you find much evidence that, as a strategy, incentives do anything better than break even at the public box office.”While noting that film industry incentives do seem to bring film projects to states that have few, a Federal Reserve Bank of Boston study noted that they are also costly, particularly since film production does not generate significant economic activity in other business sectors.

Meanwhile, the high cost of film tax credits is becoming clearer. Massachusetts’s new refundable tax credit, which even reimburses unprofitable film companies with no tax liability, is expected to soon exceed $100 million annually. The chief economist of Louisiana’s state fiscal office describes the state’s film $50 million-a-year film credit as a “government subsidy program” whose costs exceed its benefits, while Connecticut and Rhode Island are reportedly re-examining the real costs versus benefits of theirfilm subsidy programs.Cities like San Francisco hurt by competition from other regions are trying to find ways to support homegrown film producers.Perhaps these small steps towards rationality will eventually inspire other states and cities to restrain this particularly unprofitable interstate competition.

A new analysis by the Chicago Reporter, an on-line magazine that monitors Illinois policy issues, highlights the mismatch between the places in the Chicago region where rapid job growth has been concentrated and the places where the region’s African-American community–with an unemployment rate five times that of whites–lives.

The Reporter’s review of employment and population data from 1990 through 2006 shows that in the 41 municipalities where blacks made up less than 1% of the population, the number of jobs grew nearly 60,000. In contrast, the 14 municipalities with large African-American populations (30% or more) lost 45,000 jobs in the same period.

The Reporter’s findings complement findings of Good Jobs First’s 2007 Gold Collar report, which mapped state subsidy spending between 1990 and 2004.The report described how these subsidies overwhelmingly supported business location and expansion in Chicago’s already affluent, mainly white and job-rich suburban counties and communities.

These were also areas that had little affordable housing and few public transit options for job seekers from Chicago neighborhoods and suburbs with high unemployment. As the Reporter article notes, African-American job-seekers from Chicago’s South Side seeking work in fast growing McHenry County must choose between moving to costly, segregated neighborhoods or making long commutes by car.

Mapping the geographical distribution of other economic development, education, and infrastructure spending remains essential to promote more regional equity.But more aggressive use of existing policy tools, like the 2006 Illinois Business Location Efficient Incentives law, is also crucial. The law provides a modestly increased corporate tax credit for companies locating or expanding in areas with available affordable housing and/or transit access, and should be promoted vigorously to redirect more job growth back to older and needier urban areas.

Apparently to preserve Mayor Richard Daley’s détente with organized labor, Chicago government has nixed a renewed effort by Wal-Mart to build a new Supercenter in the predominantly African-American Chatham neighborhood on Chicago’s South Side.

In 2004, the company’s effort to put a store in Chicago’s impoverished West Side provoked a bitter battle in Chicago City Council. Unions and community organizations including ACORN mounted a citywide effort to block the notoriously anti-union, low-wage company from operating in the city. Wal-Mart succeeded only after Mayor Daley wielded his first-ever veto against a union-backed bill that would have required “big box” stores like Wal-Mart to pay a “retail living wage” or provide compensating benefits. However, Wal-Mart’s success in getting a West Side location was not duplicated in its simultaneous bid for a South Side store in the Chatham development. Support for the proposed Wal-Mart from the Chatham neighborhood’s local alderman could not overcome organized community opposition.

In order to win zoning changes needed for the larger Chatham project, and a reported $33 million in TIF funds for environmental clean-up, Monroe Investment Partners LLC told city government Wal-Mart would no longer be part of the Southside development. But when Archon Group, a unit of investment bank Goldman Sachs, became lead developer for the Chatham site, it renewed the bid to include a Wal-Mart store.

The experience of the existing West Side store is decidedly mixed. The store’s sales last fall were reportedly “good, not great.” Independent businesspeople near the West Side store have mixed feelings about Wal-Mart’s Jobs and Opportunity Zone Program, with some worried about being run out of business while others are happy to have a big player’s presence in an economically depressed area. At the moment, the West Side store looks like it may remain Wal-Mart’s only Chicago experiment.

CLAWBACK.ORG – A Blog of Good Jobs First

Clawback: a step taken by a government to recoup subsidies paid to a company that does not fulfill its job creation promises. Here we also deal with clawing back in a broader sense: making economic development serve the common good rather than narrow private interests.